TEI's comments on OECD BEPS Action Plan.

• Position: Tax Executives Institute, Organisation for Economic Co-operation and Development, base erosion and profit shifting

September 18, 2013

On September 18, TEI submitted a letter to the OECD commenting on its Action Plan on Base Erosion and Profit Shifting. TEI's comments focused on the general principles of the current international tax system and the need for the OECD maintain those principles as it advances its Action Plan to combat perceived base erosion and profit shifting by multi-national enterprises. The comments were prepared under the aegis of TEI's European Direct Tax Committee, whose chair is Alexander Kolbl of General Dynamics. Benjamin R. Shreck, TEI Tax Counsel, coordinated the preparation of TEI's letter.

TEI Background

TEI was founded in 1944 to serve the needs of business tax professionals. Today, the organisation has 55 chapters in Europe, North America, and Asia. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. Our nearly 7,000 members represent over 3,000 of the largest companies in Europe, the United States, Canada, and Asia.

Introduction

The OECD's Action Plan is an ambitious document with a broad scope--addressing transfer pricing, hybrid arrangements, treaty abuse, the definition of a permanent establishment, the digital economy, and indirect tax issues, as well as other items. The Action Plan notes that "[t]he BEPS project marks a turning point in the history of international co-operation on taxation" (1) and prescribes an aggressive timeframe for the production of proposals, consultation documents, and other output for each of the 15 actions within 12 to 30 months. The Action Plan notes that the weaknesses in the international tax system it identifies "put the existing consensus-based framework at risk" and that inaction in this area "could lead to global tax chaos marked by the massive reemergence of double taxation." (2)

TEI appreciates the OECD's efforts to spur reform of the present international tax system. We question, however, whether the ambitious timelines reflected in the Action Plan will allow the OECD to lay the consensus-based framework necessary to achieve the fundamental reform it seeks. By comparison, the OECD's project on the transfer pricing aspects of intangibles, a much more focused endeavor than the BEPS project, began in July 2010 and is still not complete. The current lack of consistent tax rules among OECD Member States, as detailed in the BEPS Report and Action Plan, creates both opportunities and costs for international business. Given the project's broad scope and tight timeframe, it is critical that the OECD not lose sight of the basic principles underlying the current international tax system and take into account the concerns and views of the taxpayers most affected by the Action Plan: MNEs. A full and fair consultation on each of the respective actions and consideration of the interaction among the resulting proposals is critical to the success of the BEPS project. Thus, we caution that if this project is pushed through in an accelerated timeframe, fails to achieve consensus among the OECD Member States and G20 countries on fundamental questions, and cuts short the consultation process, the OECD runs the risk of creating the "global tax chaos" it seeks to avoid.

Due to the current political climate and pressure from the G20 countries, however, it appears that the OECD is determined to address the base erosion and profit shifting concerns laid out in the BEPS Report and Action Plan in an accelerated manner. Set forth below are high-level principles and concerns that TEI believes the OECD should take into account when formulating specific proposals to implement the 15 steps of the Action Plan.

General Comments

Maintaining the integrity of the international tax system that has developed since the League of Nations' efforts in the 1920s is paramount to safeguarding the benefits of our current global economy. Because of the importance of the taxing power to the wellbeing of a state, tax rules generally favor the tax collector. For example, the...